Four times a yearThe Investment Reporterreviews its outlook for the economy’s five main sectors—financial, utilities, manufacturing, consumer and resources. Its guiding rule is that investors keep at least 10 per cent—but no more than 30 per cent—of their portfolio in each of those five sectors.

It’s best to diversify your stock portfolio across the five main sectors of the economy: finance, utilities, consumer products and services, manufacturing and resources. Each of these broad sectors is made up of sub-sectors that often have different outlooks.

Remember, though, there’s danger in loading up on stocks in sectors that we expect to beat the market. That’s because investors often bid up the prices of such stocks, making them vulnerable in market setbacks. Stocks in sectors that we expect to underperform, by contrast, often trade at bargain levels. Besides, predictions—including ours—are susceptible to errors. So make sure you own some stocks even in sectors that we expect to lag the market.

When you buy stocks in sectors and sub-sectors of the market, keep your goals in mind. If you’re a conservative, income-seeking investor, focus on utilities, financial and consumer stocks. If you’re aggressive, buy more manufacturing and resource stocks.

As a general rule, we advise you to keep at least 10 per cent—but no more than 30 per cent—in each of the five main economic sectors. Remember, too, that within any given sector or sub-sector, individual stocks will perform differently from one another.

Here’s our outlook for the next six to twelve months for the five main sectors and their sub-sectors. Our long-run outlooks can differ from our short-run outlooks.

Financial sector

We still expect bank stocks to beat the market. The yield curve is improving. They’re expanding, cutting costs and pay high, growing, dividends. We still expect mutual funds to lag due to competition from the banks and exchange-traded funds as well as more disclosure of fees. We still expect insurance stocks to outperform due to rising interest rates and fast growth in under-served markets overseas.

Utilities sector

Utility stocks mostly pay high and rising dividends. We still expect gas and electricity utility stocks to match despite rising interest rates rise. We now expect pipeline stocks to lag due to opposition, regardless of President Trump’s support. We still expect telephone stocks to beat as they limit competition.

Manufacturing sector

We still expect building materials stocks to match due to construction and renovation. We still expect chemical stocks to match as they merge and cut costs. We still expect fabricating stocks and engineering stocks to beat as Canadian governments invest in infrastructure. We now expect steel-related stocks to match due to recovering prices. We still expect technology stocks to beat as firms invest. We still expect transportation stocks to match as protectionism and a growing economy pull in opposing directions.

Consumer sector

We still expect traditional communications stocks to lag, but not those that serve online advertisers. We still expect food, beverage and tobacco stocks to match as more investors seek dividends and safety. We still expect Canada’s drugstores and small healthcare stocks to lag, due to government regulations, lower drug prices and generic drugs. We still expect surviving merchandisers to match as competitors fail. But online sales by, say, Amazon, are a threat.

Resources sector

We still expect gold stocks to outperform due to higher prices and rationalized operations. We now expect oil and gas stocks to underperform: every time the price of oil starts to rise, American shale producers quickly increase production. We now expect mining stocks to outperform as the global economy picks up speed. We now expect forestry stocks to match the market, held back by US duties. This is partly offset by brisk construction—especially following hurricanes Harvey and Irma.

This is an edited version of an article that was originally published for subscribers in the September 1, 2017, issue of The Investment Reporter. You can profit from the award-winning advice subscribers receive regularly in The Investment Reporter.